The other day I was attending large PMI symposium with hundreds of career project managers in Tampa Florida. During one of the routine lunch breaks which is open of networking I happened to be seated next to a gentleman that worked for a large accounting firm that ramped its outsourcing over last two years to an India based firm, he was critical of the whole outsourcing. He kept on complaining how nothing is working, the challenges he faced in his job and how this will eventually collapse and painted a picture of gloom and doom and went on ranting for the next 45 minutes. I did listen patiently, finished my lunch and wished him good luck, patience and told him to seek early retirement since he mentioned it was on his mind.

First things first, I am not saying that outsourcing is not without flaws or pitfalls. But look at the benefits as a CIO or CEO would look at it, you cannot ignore the ROI not just from economic sense, but for the ability to source what you want, when you want at a competitive price. Being a technology leader myself I have been situations when I sent assignments to my offshore team and next morning it was ready to be presented to the clients often to their surprise, they would ask me if I lost sleep trying to complete their assignment, and when I tell them that I went to sleep after sending it offshore over a brief call with instructions in the email and they sent it this morning, their jaws dropped. Imagine being 24/7, support or working round the clock from three locations – you can delight your clients for sure while cutting costs.

Every outsourcing arrangements has pitfalls, you just have to have the right leadership, experience and the patience to solve hurdles as you come across. Don’t imitate outsourcing just because others are doing it. The one size fits all wont work. Every business is different, and every outsourcing partner is different in some sense, e.g. some specialize in banking, Insurance, while others specialize in healthcare, engineering etc. there are specialized firms today in everything you do from VLSI to space technologies, Aviation, retain, telecom, Geo mapping so on and so forth.

I covered previously in my blog what to watch for as you go about making outsourcing arrangements. It would make perfect sense not just economic sense to outsource and in some case a case for survival of the company more so during recession. A Sustained campaign to train your staff on embracing outsourcing is the key. There are many firms today that specialize in sensitizing your staff on managing across boundaries. Explain the benefits and the situational need to outsource and providing scientific evidence on dealing with different culture and developing appreciation for it are some ways to keep the resistance low. Seeing colleagues lose jobs as outsourcing ramps up in most companies is not a great scenario for motivation and morale. This was not the culture that we all grew up with. I have worked in companies where three generations worked under the same roof and was common if not rare. It does breed a culture of some employees resorting to bickering and bad mouthing the company like my friend did to me at the lunch. The workplace is changing and rapidly at that for some of us to adapt and retool.

Outsourcing is here to stay, you can wish it goes away with insourcing but no, I dont see that even on the distant horizon.

Most Outsourcing arrangements are often multiple vendor set up for very obvious reasons – allow them to compete on all fronts and gain pricing advantage. However there are cases where single vendor is an approach, this happens more from the vendor side that often tend to negotiate to be sole provider for a discounted price. The clients falls for it not knowing how this will impact in the long run. This is not an uncommon practice starting in early 70s, then 80 when large corporations in developed economies mostly in US and Europe outsourced their IT departments to concentrate on their core business.

It works well initially till the outsourced vendor entrenches itself, gains the confidence and then begins the downwards spiral. At times it has been quick within five to ten years, and some that slightly lasted more than that. In every relationship the initial years though it begins with struggle, you get the best top to bottom and once the investment phase is over the outsourced vendor starts looking at their bottom lines to see how they can squeeze more out of the deal. Hobnobbing for couple of years it is easy to get cozy at all levels and see the service levels drop unless there is a good way to measure and improve on the performance benchmarks. The initial bar set low should be gradually scaled so the contractual performance improves not stagnates.

The influence of senior management on single vendor situations are not uncommon. The appreciation and understanding at that top-level is not commensurate with what is happening at the ground. The need to support single vendor solution keeping in view the economies it provides to the clients bottom line tops all judgment. The message always to the lower cadres is to fall in line and keep the relationship going at all costs. It is only when the worst nightmares surface that management take notice and take remedial action, by that time the damage is done. Stories about of clients that lost all of its competitiveness, time to market, lost a ton of money, their brain power before they decided enough is enough and threw the vendor out and move on to other strategies from finding a new partner or totally bringing everything in house. It takes years depending on the size of the contract to get back in shape.

Single vendor relationships tend to look like a financial boon initially given the pricing advantage, however it tapers off very quick. It is always good to have atleast two if not more vendors compete for your outsourcing dollars. Every benchmark you care comes into play and competition plays it out driving the advantages and improving overall efficiencies

I am sure many of you that are involved in outsourcing have been part of the billing war in some form or fashion. Guess who wins every time, it is the outsourced provider. Most of the time the clients just give up or think they have bigger fish to fry so they move on. Like drops of water make an ocean, this adds up.

Most of the IT outsourcing contracts are geared towards ensuring providers have some leeway into protection of their billing. The era of fixed price bids is not a norm anymore solely due to the fact that it doesn’t work well for the providers, many have lost face and money in these type of deals which is again due to a host of factors that I will cover another time. The other billing types lime T&M, Staff augmentation, sole contracts etc. are fodder for billing leakages.

it is advisable to have a robust process to check billing and make sure the outsourcing dollars are spent wisely. Processing of invoices as they come in needs discipline and verification against time sheet data. The source being time sheets, it pays to have people signing off those to do their due diligence. At times there is no connection between those that approve time sheets and those that process invoices which is best avoided. You want both of these folks to be in sync to do what it takes to be accurate in processing bills.

Given the downturn almost all IT outsourced providers have tightened the belt on what they call “Billing Leakage”. Not just that they actively look for measures to see where they can tap out more billing often going for smaller lines. it helps since the clients really don’t look at smaller lines with that close eye it deserves.

Many providers have lost face or lost credibility due to this factor, at time the middle manager at these firms tend to be aggressive to exceed their targets with unscrupulous means. Most of the senior leadership at the providers are not about these smaller moneys coming at the cost of credibility and actually discourage such practices. It is not uncommon to have broken process that benefits providers, they simply refuse to make improvements for obvious reasons

Given the economic situation and the need to account for every dollar spent on outsourcing it is imperative to relook at the billing practices and processing workflow end to end from receipt of the bills to payments and take remedial action. Many firms will benefit from doing a wing to wing mapping using Lean Sigma. There is lot of money to be made here for clients in terms of savings and arrest the billing leakage from their ends.

Most of IT big-budget, multi-year contracts are inked with months if not weeks of due diligence most often looking at the credentials of the firms and their leadership. Almost all of the big firms have exceedingly high reputation at their senior leadership levels with unmatched sincerity. Coming to smaller firms it takes them years to build that steadily one client at a time while they evolve to maintain their growth.

Let’s talk about the big firms specifically – The leadership enjoys high confidence among the corporates of the world for their sincerity for their willingness to work at personal levels to resolve differences, help clients concentrate on their business growth while they keep the IT shop humming leaders of IT, their accessibility and reach etc. Providers have won huge praise and awards from governments the world over for their contributions and their dedication in all sincerity.

There are ofcourse bad eggs in ever industry and IT is not insulated from it. Firms that promised much but didn’t deliver on the promise broke agreements and left clients in a lurch.

While the top leaders from IT providers develop long term relationships and grow the business the tasks of growing the holding the fort and delivery falls on the middle tier leaders often don’t follow the core principles their leadership used to bag the contracts and grow. The goals of middle tier is often grow their individual careers, look for short term revenue opportunities, one up man ship, unhealthy competition, poor client engagement, making untenable promises, politicking, pitting one against another, indulging in infighting, complaining on their client partnerships – just to name a few. Some are outright ill-qualified The analogy of “too big” to be thrown out of the client or multi-year contract also creates an atmosphere of protection for the middle tier leaders of the IT firms to be comfortable with.

This is one of the top issues that IT providers and their leaders struggle with but don’t make an issue for their clients to know that this exists. Often the middle level managers who are representatives of their leaders on client sites totally forget the principles of client engagement their bosses laid out and toe their own line often with negative consequences.

Aided by some of the negative pressures on outsourcing in developed countries from the locals this problems at times can spiral out of control. Some of the managers from IT providers are untrained and cannot fit in culturally or they reach client locations due to other considerations. Top tier IT firms have taken steps to train and mentor them before they join client sites which has helped alleviate this problem. However this exists in quite a good measure.

The vision and foresight to look at long term client relationship is not kept in view while dealing with day to day client engagement / client requests. A good part of the strategy of middle managers in IT firms is to look at making the quick buck forgetting the fact that these instances become a thorn in the flesh at growing business and actually exposes their firms to host of issues that come to bear during the renewal or extension of contracts and impede the growth of their organizations goals and objectives. Not to generalize there are few exceptions that actually end up rising to the top. The ability to sacrifice short term trivial benefit towards developing a relationship with the client for ever is often ignored. It takes a lot to bag a new client in the competitive market environment and retaining and growing it takes much more while losing the client due to short term opportunities at the cost of quality and client satisfaction is something IT providers should keep their eyes and ears open. If you study the growth of the global Big 3 consulting firms, their sole mantras has been towards keeping client interests very high on their radar and align to their long terms growth.

The philosophy of customer once – client forever, needs to be adopted by the IT Outsourcing firms and ensure everyone in their organization lives to their reputation to this motto.

Crisis situation in IT outsourced environment is common if not frequent. It is more prevalent during the initial stages of the contract or relationship than in an established one. It is important to have a good crisis management team comprising of both sides ready to handle. It is again important to have this from ground up and have all the relevant players and keep it balanced with both client and providers representatives. Identify players who are mature, have prior experience, the knowledge and patience and the understanding of what this means to the business. Roping in Incident Management and problem management teams is important to manage crisis professionally, give it a sense of legitimacy while following the communication and reporting protocol.

The tendency to point fingers should be resisted. Immediate attention should be focused on managing the crisis and restoring normalcy. A lessons learnt is pertinent once the storm blows over.

Most often trivial situation get out of hand and become full blown crisis that need maturity in handling. The tendency to sweep under the carpet initially at the lower levels as the matter gets out of hand is not uncommon. The culture more so in Asian sub-continent is to wait till last minute to see if they can solve the issues is something that needs to be dealt with. It is good to stress an open environment to encourage reporting of situations that could become crisis in the near future and a take a toll on both sides. Keeping a close eye on risks that have become issues will help alleviate getting into crisis situations or atleast know the background when it does become one.

Developing and having an action plan in place to deal with crisis, with names and contact numbers, a toll free number to join, a identified representative who can play the role of ombudsman on both sides will save a lot of time and money when crisis does hit. Also important is to keep the plans utilized during past events with updates from lessons learnt to use it under similar circumstances.

Lord William Thomson Kelvin said “If you cannot measure it, you cannot improve it “

Measuring the performance of your outsourced arrangement is extremely important. Not just from financial perspective, there are many other considerations involved here ranging from measuring productivity, contribution of your employees, morale and motivation, project and deliverables at stake, time to market, security amongst others. Transparency is the key, don’t ignore the right team members that need to see the metrics, again different metrics for various levels of audience is fine. Insist on showing action taken where appropriate.

Some best practices to adhere are :

• Invest in looking at all metrics together at a glance – many of these are related and helps to look at the overall health of the outsourcing arrangement.
• Review at different levels, pick a cadence weekly, monthly, quarterly and of course yearly overall.
• Look for amber and red not just greens. Reject the all green report, it means nothing. Look for false claims
• Dashboard with historical data and trends would be of immense help to see the pattern whether you are improving or going south
• Constitute special teams to tackle the toughest metrics needing remedial actions
• Conduct / facilitate reviews at appropriate level – make it in person if feasible. Over the phone conversations don’t tend to go well more so when the metrics are mixed
• Distribute widely among those that are not in attendance or don’t get a seat at the table while metrics are reviewed and solicit feedback
• Don’t have too many levers to measure – measure what is important to you and in that order
• Avoid too many numbers –focus on essentials. Have a crisp summary for the period under review
• Don’t delay looking at reports – for example monthly reports should be reviewed the first week of following month likewise – no point looking at metrics after a long pause, the damage is perhaps done already
• Look for noise that tops the bad metrics, eliminate those metrics that you don’t care but the outsourced providers cares and induces it into the mix
• Encourage showing what is not green – after all that is what needs attention. Discourage the “All green” reports, they mean something is wrong

Don’t lose out on averages…..or statistical lies, imagine the famous sentence attributed to Mark Twain “Lies, damned lies, and statistics” describing the persuasive power of numbers, particularly the use of statistics to bolster weak arguments.